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Paternalism and the alleviation of poverty

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  • Jesurun-Clements, Nancy
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    Abstract

    Typically the tools available for redistribution are price subsidies and direct cash transfers. Conventional economic theory indicates that the efficiency loss is minimized if cash transfers are used instead of price subsidies. But in almost all economies, including advanced economies, price subsidies are implemented and cash transfers are seldom used. The author argues that taxpayers enjoy the poorer citizen's specific consumption package more than improving the poorer citizen's general economic welfare. Her objective is to identify the conditions under which price subsidies represent a more efficient way of alleviating poverty than cash payments, given taxpayers'paternalistic preferences. She concludes that when the taxpayers'prevalent behavior is paternalism, and taxpayers have more weight in society, the option for redistribution would be to target price subsidies to the poor. This brings about a greater improvement in overall social welfare and happier taxpayers than any other policy. With this solution, the poor are somewhat better off, even though they would rather receive cash transfers, which would represent the same financial cost to the economy.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 822.

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    Date of creation: 31 Jan 1992
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    Handle: RePEc:wbk:wbrwps:822

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    Related research

    Keywords: Safety Nets and Transfers; Services&Transfers to Poor; Rural Poverty Reduction; Economic Theory&Research; Environmental Economics&Policies;

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    1. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
    2. Rader, Trout, 1980. "The second theorem of welfare economics when utilities are interdependent," Journal of Economic Theory, Elsevier, vol. 23(3), pages 420-424, December.
    3. Diamond, Peter A & Mirrlees, James A, 1973. "Aggregate Production with Consumption Externalities," The Quarterly Journal of Economics, MIT Press, vol. 87(1), pages 1-24, February.
    4. Ravi Kanbur & Michael Keen & Matti Tuomala, 1990. "Optimal Non-Linear Income Taxation for the Alleviation of Income Poverty," Working Papers 799, Queen's University, Department of Economics.
    5. Besley, Timothy J & Kanbur, S M Ravi, 1988. "Food Subsidies and Poverty Alleviation," Economic Journal, Royal Economic Society, vol. 98(392), pages 701-19, September.
    6. Schall, Lawrence D, 1972. "Interdependent Utilities and Pareto Optimality," The Quarterly Journal of Economics, MIT Press, vol. 86(1), pages 19-24, February.
    7. Robert Holzmann, 1990. "The Welfare Effects of Public Expenditure Programs Reconsidered," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 338-359, June.
    8. S. Q. Lemche, 1986. "Remarks on Non-paternalism and the Second Theorem of Welfare Economics," Canadian Journal of Economics, Canadian Economics Association, vol. 19(2), pages 270-80, May.
    9. Dorfman, Robert, 1975. "Note on a Common Mistake in Welfare Economics," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 863-64, August.
    10. Burtless, Gary, 1990. "The Economist's Lament: Public Assistance in America," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 57-78, Winter.
    11. G. C. Archibald & David Donaldson, 1976. "Non-Paternalism and the Basic Theorems of Welfare Economics," Canadian Journal of Economics, Canadian Economics Association, vol. 9(3), pages 492-507, August.
    12. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
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